In accounting, debit (Dr) and credit (Cr) are the backbone of the double-entry system. Every transaction affects two or more accounts in such a way that the accounting equation stays balanced.
But to truly understand about debit and credit rules in accounting & how this works, you need to know which accounts increase or decrease with a debit or a credit.
📊 The Golden Rules of Debit and Credit
Accounting has five major account types, and each behaves differently with debits and credits:
| Account Type | Increases With | Decreases With |
|---|---|---|
| Assets | Debit | Credit |
| Liabilities | Credit | Debit |
| Owner’s Equity/Capital | Credit | Debit |
| Revenue/Income | Credit | Debit |
| Expenses | Debit | Credit |
🔄 Real-Time Examples by Account Type
Let’s explore real-world transactions to understand how debits and credits function:
🏦 1. Assets
Example: You receive $5,000 in cash from a client.
- Cash (Asset) increases → Debit $5,000
- Revenue (Income) increases → Credit $5,000
✅ Rule: Assets increase with a debit
📉 2. Liabilities
Example: You take out a loan of $10,000 from the bank.
- Cash (Asset) increases → Debit $10,000
- Loan Payable (Liability) increases → Credit $10,000
✅ Rule: Liabilities increase with a credit
👤 3. Owner’s Equity/Capital
Example: You invest $2,000 of your own money into the business.
- Cash (Asset) increases → Debit $2,000
- Owner’s Capital (Equity) increases → Credit $2,000
✅ Rule: Owner’s Equity increases with a credit
📈 4. Revenue/Income
Example: You earn $800 from a service you provided.
- Cash or Accounts Receivable (Asset) increases → Debit $800
- Service Revenue (Income) increases → Credit $800
✅ Rule: Revenue increases with a credit
📉 5. Expenses
Example: You pay $300 for office rent.
- Rent Expense (Expense) increases → Debit $300
- Cash (Asset) decreases → Credit $300
✅ Rule: Expenses increase with a debit
🧮 Summary Table: Debit vs. Credit
| Type of Account | Debit Effect | Credit Effect | Example Transaction |
|---|---|---|---|
| Assets | Increase | Decrease | Buying inventory with cash |
| Liabilities | Decrease | Increase | Taking a loan |
| Equity (Capital) | Decrease | Increase | Owner investing in the business |
| Revenue | Decrease | Increase | Earning income from services |
| Expenses | Increase | Decrease | Paying for utilities or salaries |
💡 Key Tip for Remembering
🔁 “DEALER” Rule
Divide accounts into DEALER to recall how debits and credits work:
- D: Dividends (Drawings) → Debit ↑
- E: Expenses → Debit ↑
- A: Assets → Debit ↑
- L: Liabilities → Credit ↑
- E: Equity → Credit ↑
- R: Revenue → Credit ↑
✅ Final Thoughts
Knowing the debit and credit rules is like understanding the grammar of financial language. Whether you’re recording a simple sale or preparing complex financial statements, these rules ensure every entry is recorded properly.
Understanding this concept is not just for accountants — it’s vital for business owners, finance students, and entrepreneurs who want to stay in control of their financial health.
